M/s Visakhapatnam Urban Development Authority (VUDA), Visakhapatnam, Hyderabad V. The ACIT, Circle1(1), Visakhapatnam

ITA 187/VIZ/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7389 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TH LUCAS PETER
• Assessee Lawyers: A V RAGHURAM
• Keywords: Depreciation; Charitable institution; Principle of natural justice
• Section: 12A; 263; 12; 154; 11

Judgement Text

ITA NO 187 OF 2011 VUDA VISAKHAPATNAM PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.187/VIZAG/2011 ASSESSMENT YEAR: 2007 - 08 VISAKHAPATNAM URBAN DEVELOPMENT AUTHORITY (VUDA) VISAKHAPATNAM VS. ACIT, CIRCLE-1(1) VISAKHAPATNAM (APPELLANT) PAN NO: AAALV 0082 F (RESPONDENT) APPELLANT BY: SHRI A.V. RAGHU RAM, ADVOCATE RESPONDENT BY: SHRI TH. LUCAS PETER, CIT (DR) ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 07.03.2011 PASSED BY LEARNED CIT VISAKHAPATNAM UNDE R SECTION 263 OF THE ACT AND IT RELATES TO THE ASSESSMENT YEAR 2007-08. 2. THOUGH THE ASSESSEE HAS RAISED AS MANY AS 9 GROU NDS, ALL OF THEM ARE DIRECTED AGAINST A SINGLE ISSUE, I.E. ABOUT THE VALIDITY OF INITIATION OF REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS A LOCAL AUTHORITY AND IS REGISTERED AS A CHARITABLE I NSTITUTION UNDER SECTION 12A OF THE ACT. IT FILED ITS RETURN OF INCOME FOR THE YE AR UNDER CONSIDERATION DECLARING NIL INCOME AFTER CLAIMING EXEMPTION UNDER SECTION 11 OF THE ACT. IN THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE ON PARKS & PL ANTS AND ACCORDINGLY RECOMPUTED THE INCOME OF THE ASSESSEE. WHILE DOING SO THE ASSESSING OFFICER ALLOWED SET OFF OF LOSS RELATING TO EARLIER YEARS. THE ASSESSING OFFICER, FURTHER QUANTIFIED THE AMOUNT OF LOSSES TO BE CARRIED FORWARD IN ITA NO 187 OF 2011 VUDA VISAKHAPATNAM PAGE 2 OF 6 SUBSEQUENT YEARS. FOR THE SAKE OF CONVENIENCE, WE E XTRACT BELOW THE COMPUTATION MADE BY THE ASSESSING OFFICER: GROSS TOTAL INCOME DISCLOSED ` 1,44,77,293 ADD: DEPRECIATION DISALLOWED IN RESPECT OF PARKS AN D PLANT AS DISCUSSED ABOVE ` 79,22,549 ` 2,23,99,842 LESS: AMOUNT APPLIED FOR ACQUISITION OF ASSETS AS P ER RETURN ` 1,67,59,377 ` 56,40,465 LESS: BROUGHT FORWARD LOSS OF AY 2003- 04 AS PER ORDER UNDER SECTION 154 DT. 30.03.2009 FOR ASSESSMENT YEA R 2006-07 ` 2,32,36,322 LOSS OF AY 2003-04 TO BE CARRIED FORWARD (-) ` 1,75,95,857 LOSS OF AY 2004-05 TO BE CARRIED FORWARD (-) ` 39,06,856 LOSS OF AY 2005-06 TO BE CARRIED FORWARD (-) ` .2,52,88,739 THE LEARNED CIT NOTICED THAT THE ASSESSING OFFICER HAS WRONGLY APPLIED THE PROVISIONS RELATING TO SET OFF AND CARRY FORWARD OF BROUGHT FORWARD LOSSES WHICH ARE NOT APPLICABLE TO THE INCOME COMPUTED AS PER THE PROVISIONS OF SECTION 11 TO 13 OF THE ACT. THE LEARNED CIT SPECI FICALLY NOTICED THAT THE SAID PROVISIONS OF SET OFF AND CARRY FORWARD ARE AP PLICABLE TO THE INCOME COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS. THOUGH THE ASSESSEE CONTENDED BEFORE THE LEARNED CIT THAT IT I S ENTITLED TO SET OFF OF THE EXCESS EXPENDITURE INCURRED IN EARLIER YEARS, T HE LEARNED CIT WAS NOT CONVINCED WITH THE SAID CONTENTIONS. ACCORDINGLY HE CONSIDERED THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE AND ACCORDINGLY SET ASIDE THE ASSESSMENT OR DER AND DIRECTED THE ASSESSING OFFICER TO REDO THE ASSESSMENT DE NOVO AS PER THE PROVISIONS OF THE ACT. AGGRIEVED BY THE ORDER OF THE LEARNED CIT, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE INCOME OF A CHARITABLE INSTITUTION IS COMPUTED AS PER THE COMME RCIAL PRINCIPLES. AS PER THE PROVISIONS OF SEC.11 OF THE ACT, THE ASSESSEE I S ALLOWED TO DEDUCT EXPENDITURE APPLIED TOWARDS THE OBJECT OF THE TRUST AND FOR THAT PURPOSE THE EXCESS EXPENDITURE INCURRED IN THE EARLIER YEAR S CAN ALSO BE TREATED AS CURRENT YEARS EXPENDITURE AND THE SAME CAN ALSO BE DEDUCTED AGAINST THE ITA NO 187 OF 2011 VUDA VISAKHAPATNAM PAGE 3 OF 6 CURRENT YEARS INCOME. IN SUPPORT OF THIS PROPOSITIO N THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: (A) CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION (1987) 164 ITR 439 (B) CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MA NDAL (1995) 211 ITR 293 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMI TTED THAT THE ASSESSING OFFICER HAS COMMITTED A CLERICAL ERROR BY MENTIONIN G THE CARRY FORWARD EXPENDITURE AS CARRY FORWARD LOSS AND HENCE FOR THAT REASON ALONE, THE ASSESSMENT ORDER CANNOT BE TERMED AS ERRONEOUS. HE FURTHER SUBMITTED THAT SAID ACTION OF THE ASSESSING OFFICER DOES NOT RESULT IN ANY PREJUDICE TO THE DEPARTMENT, AS THE INCOME OF THE ASSESSEE IS OT HERWISE EXEMPT. ACCORDINGLY HE CONTENDED THAT THERE IS NO NECESSITY TO INITIATE REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT IN THE FAC TS AND CIRCUMSTANCES OF THE CASE AND PLEADED FOR SETTING ASIDE OF THE IMPUG NED ORDER OF LEARNED CIT. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER HAS CLEARLY CO MMITTED AN ERROR IN APPLYING THE PROVISIONS OF SET OFF AND CARRY FORWAR D OF LOSSES IN THE HANDS OF THE ASSESSEE HEREIN, WITHOUT APPRECIATING THE FACT THAT THE SAID PROVISIONS ARE NOT APPLICABLE TO A CHARITABLE INSTITUTION. THE FACT THAT THE ASSESSING OFFICER HAS MISDIRECTED HIMSELF IS VERY MUCH EVIDEN T FROM THE FACT THAT HE HAS QUANTIFIED THE AMOUNT OF LOSS THAT SHOULD BE CA RRIED FORWARD IN SUBSEQUENT YEARS, WHICH IS TOTALLY AGAINST THE PROV ISIONS OF THE INCOME TAX ACT VIS--VIS CHARITABLE INSTITUTIONS. ACCORDINGLY HE SUBMITTED THAT THE APPLICATION OF WRONG PROVISIONS OF THE ACT WOULD RE NDER THE ASSESSMENT ORDER AN ERRONEOUS ONE. HE FURTHER SUBMITTED THAT T HE APPLICABILITY OF SEC. 11 IN THE HANDS OF A CHARITABLE INSTITUTION IS SUBJ ECT TO CONDITIONS PRESCRIBED UNDER SECTION 12 & 13 OF THE INCOME TAX ACT AND SUC H CONDITIONS HAVE TO BE FULFILLED EVERY YEAR. ASSUMING FOR A MOMENT THAT THE ASSESSEE LOSES EXEMPTION UNDER SECTION 11 IN A SUBSEQUENT YEAR FOR VIOLATION OF ANY OF THE CONDITIONS PRESCRIBED UNDER SECTION 12 AND 13 OF TH E ACT, THEN THE PRESENT ITA NO 187 OF 2011 VUDA VISAKHAPATNAM PAGE 4 OF 6 ORDER APPEARS TO GIVE A RIGHT TO THE ASSESSEE FOR S ETTING OFF OF EARLIER YEAR LOSSES OR THE CASE MAY BE EXCESS EXPENDITURE, WHI CH IS NOT PERMISSIBLE UNDER THE LAW AND IN THIS CONTEXT, THE IMPUGNED ASS ESSMENT ORDER ALSO BECOMES PREJUDICIAL TO THE INTERESTS OF THE REVENUE . 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE SCOPE OF REVISION PROCEEDING WAS CONSIDERED BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DLF POWER LTD., (2010) (329 ITR 289), WHEREIN THE HON'BLE COURT FOLLOWED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY (2000) (243 ITR 8 3). FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVAT IONS OF HON'BLE DELHI HIGH COURT. 18. FURTHER, EVEN IF TWO VIEWS WERE POSSIBLE, AND THE VIEW TAKEN BY THE ASSESSING OFFICER WAS PLAUSIBLE ONE, I T BY THE COMMISSIONER OF INCOME-TAX, THAT WOULD NOT PROVIDE SUFFICIENT GROUND FOR THE COMMISSIONER OF INCOME-TA X TO ASSUME JURISDICTION UNDER SECTION 263 OF THE ACT ME RELY BECAUSE HE HAD A DIFFERENT VIEW. IN MALABAR INDUSTR IAL CO. LTD. [2000] 243 ITR 83, THE SUPREME COURT GAVE THE FOLLOWING INTERPRETATION TO THIS PROVISION (HEAD-NO TE) : 'A BARE READING OF THIS PROVISION MAKES IT CLEAR THAT THE PRE-REQUISITE TO EXERCISE OF JURISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS ; AND (II) IT IS PREJUDICIAL TO THE INTER ESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT-IF THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS BUT IS NOT PRE-JUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. THE PRO-VISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE ITA NO 187 OF 2011 VUDA VISAKHAPATNAM PAGE 5 OF 6 REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE `PREJUDICIAL TO THE INTERESTS OF THE REVENUE' IS NOT AN EXPRESSION OF ART AND IS NOT CONFINED IN THE ACT. UNDERSTOOD IN ITS ORDINARY MEANING IT IS OF WIDE IMPORT AND IS NO T CONFINED TO LOSS OF TAX. THE SCHEME OF THE ACT IS T O LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS ORDER OF THE INCOME-TAX OFFICER, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE PHRASE `PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE LAW AND IT HAS RESULTED IN LOSS OF REVENUE ; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW.' 7. IN THE INSTANT CASE, THE LEARNED A.R CONTENDS THAT THE ASSESSING OFFICER HAS ONLY COMMITTED A CLERICAL ERROR BY MENT IONING THE CARRY FORWARD OF LOSS FOR THE EXCESS EXPENDITURE INCURRED IN THE EARLIER YEARS. HOWEVER, AS CONTENDED BY LEARNED D.R, THE QUANTIFICATION OF LOSSES TO BE CARRIED FORWARD IN SUBSEQUENT YEARS, WHICH WAS DETERMINED A ND STATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, WOULD CL EARLY SUGGEST THAT THE ASSESSING OFFICER HAS MISDIRECTED HIMSELF BY APPLYI NG THE PROVISIONS OF THE ACT RELATING TO SET OFF AND CARRY FORWARD OF LOSSES . THERE CANNOT BE ANY DOUBT THAT THE APPLICATION OF WRONG PROVISIONS OF T HE ACT IS NOT SUSTAINABLE UNDER THE LAW. HENCE, IN OUR VIEW, THERE IS AN ERR OR IN THE ASSESSING OFFICER. THE QUANTIFICATION OF LOSSES TO BE CARRIE D FORWARD MAY ALSO RESULT IN ITA NO 187 OF 2011 VUDA VISAKHAPATNAM PAGE 6 OF 6 PREJUDICE TO THE REVENUE AS PER THE CASE PROJECTED BY THE LEARNED D.R. HENCE, IN OUR VIEW, THE LEARNED CIT WAS RIGHT IN SE TTING ASIDE THE IMPUGNED ASSESSMENT ORDER. HOWEVER, THE CLAIM OF THE ASSESS EE THAT IT IS ENTITLED TO SET OFF THE EXCESS EXPENDITURE INCURRED IN THE EARL IER YEARS AGAINST THE CURRENT YEARS INCOME IS SUPPORTED BY LEGAL PRECEDE NTS. HENCE, WE MODIFY THE ORDER OF LEARNED CIT AND DIRECT THE ASSESSING O FFICER TO REDO THE ASSESSMENT DENOVA BY DULY EXAMINING THE CLAIM OF TH E ASSESSEE IN THE LIGHT OF PRINCIPLES ENUNCIATED IN THE CASE LAW RELIED UPO N BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREA TED AS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 8 TH AUGUST, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 08-08-2011 COPY TO 1 THE VISAKHAPATNAM URBAN DEVELOPMENT AUTHORITY C/O SHRI A.V. RAGHU RAM, ADVOCATE, 610 BABUKHAN ESTATE, BASHEERBAGH, HY DERABAD-1 2 THE ACIT CIRCLE-1(1) VISAKHAPATNAM 3 4. THE CIT VISAKHAPATNAM THE ADDL.CIT RANGE-1, VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM